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The Federal Government has proposed changes to the R&D Tax Incentive for companies with a turnover greater than $20 million for 2018-2019.
This proposed change did not pass through the senate.
The research and development premium will provide different rates of non-refundable R&D tax offsets, increasing with the R&D intensity.
The cost of the R&D Tax Incentive was expected to be $1.8 billion per year when it was introduced in 2011-12 but in 2016-17 it cost around $3 billion. With the total handed out so far of around $6.1 billion.
The 2016 review of the R&D Tax Incentive found that the program is failing to meet its objectives of encouraging additional R&D and generating the associated flow-on benefits for the Australian economy.
The Review found that among larger companies, those with higher R&D intensity provide the greatest benefits to the Australian economy. Encouraging more companies to increase their R&D intensity and undertake additional R&D activities is a key objective of the R&D Tax Incentive.
2021 R&D Tax Incentive Changes
The tax offset for eligible R&D conducted from 1 July 2021 is now based on a premium on top of your corporate tax rate.
- Annual Cap (<$20M) – For R&D entities with aggregated turnover of less than $20 million, the refundable R&D tax offset is your corporate tax rate plus an 18.5% premium.
- Annual Cap (>$20M) – For R&D entities with aggregated turnover of $20 million or more, the non-refundable R&D tax offset is your corporate tax rate plus an incremental premium.
- R&D Intensity Test (>$20M) – For companies with turnover of more than $20M, there will be an R&D premium that ties the tax offset to the intensity of R&D expenditure compared with total expenditure.
- Enhanced Transparency – Compliance and administrative will be stepped up with the ATO and AusIndustry increasing levels of program guidance and enforcement activity. The ATO will also be able to publicly disclose claimant details and the R&D expenditure
The R&D Tax Incentive Intensity Levels
For companies with an aggregated turnover of $20 million or more, the Government will introduce a two-tiered premium that ties the rates of the non-refundable R&D tax offset to the incremental intensity of the R&D expenditure as a proportion of total expenditure for the year. The new rates will be the claimant’s company tax rate plus:
- 8.5 percentage points for R&D expenditure up to 2 per cent R&D intensity
- 16.5 percentage points for R&D expenditure above 2 per cent R&D intensity
For companies with an aggregated turnover below $20 million, the refundable R&D tax offset will be a premium of 18.5 percentage points above the claimant’s company tax rate.
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Understanding eligible R&D Activities
R&D projects are made up of a number of steps that you must take for a project to succeed. These steps are R&D activities. Each R&D activity will have of one or more actions that you must complete to achieve an activity outcome.
The program supports R&D activities that can be shown to follow a set of specific actions. These actions must meet the requirements set out in the definition of an eligible R&D activity.
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